Business Context and Reporting Period
Company: EVERTEC, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: March 17, 2016
Subject: Non-reliance on previously issued financial statements due to an accounting error regarding a deferred tax asset.
Key Financial Metrics and Impact
The filing does not report current period revenue, profit, or cash flow. Instead, it details the estimated financial impact of a restatement on historical periods (2013–2015) and balance sheet positions as of December 31, 2014 and 2015.
- Deferred Tax Asset: Previously recorded at approximately $14 million (as of Dec 31, 2010); now estimated to be zero for accounting purposes.
- New Liability: An additional liability of approximately $3 million to $5 million is expected for potential tax liabilities.
- Accumulated Earnings: Expected reduction of approximately $12 million to $14 million (substantial majority relates to 2010).
- Windfall Tax Benefit: Reduced from a previously reported $11 million to between $4 million and $6 million.
- 2015 Position: Management estimates no deferred tax asset for net operating loss or windfall tax benefits will exist as of December 31, 2015.
Material Changes Versus Prior Periods
The primary material change is the derecognition of a deferred tax asset related to a net operating loss from 2010 expenditures. Management concluded the asset was recorded in error because the tax position did not meet the required threshold under ASC 740 (Income Taxes). Consequently, financial statements for the years ended December 31, 2013 and 2014, and all quarterly periods in 2014 and 2015, are no longer reliable and will be restated.
Guidance, Outlook, Risks, and Contingencies
- Restatement Plan: The Company plans to include the restatement in its Annual Report on Form 10-K for the year ended December 31, 2015.
- Impact on Operations: Management estimates the impact on income from operations for the affected periods to be immaterial.
- Internal Controls: Management is analyzing the impact of the error on internal controls over financial reporting but has not yet reached a conclusion.
- Risks:
- Failure to file the 2015 Form 10-K within the timeframe required by NYSE listing standards.
- Potential litigation arising from the accounting error and restatement.
- Accounting Firm: Matters have been discussed with current auditor Deloitte & Touche LLP and predecessor PricewaterhouseCoopers LLP.
Investor Verification Checklist
- Verify the final restatement figures in the upcoming Form 10-K for the year ended December 31, 2015.
- Monitor the Company's ability to file the 2015 Form 10-K in time to maintain NYSE listing status.
- Review the final conclusion regarding the effectiveness of internal controls over financial reporting.
- Assess the potential for litigation related to the accounting error and its financial impact.